Bursa Malaysia Securities Publicly Reprimands Tracoma Holdings Berhad And Fines Six Directors A Total Of RM135,000

Bursa Malaysia Securities Berhad (Bursa Malaysia Securities) has publicly reprimanded Tracoma Holdings Berhad (TRACOMA) and six of its directors for breaching the Listing Requirements of Bursa Malaysia Securities (LR). In addition, the six directors were fined a total of RM135,000.

TRACOMA was publicly reprimanded for breaching paragraphs 9.03(1) and 9.04(l) of the LR read together with paragraph 2.1(d) of Practice Note No.1/2001 (PN1) for failing to make an immediate announcement of the default in payment of the collateralised loan obligation (CLO) of RM40 million to CapOne Berhad (CapOne) and Malaysian Trustees Berhad (MTB).

Notwithstanding that TRACOMA was de-listed on 4 November 2011, the breach had been committed while TRACOMA was listed on the Official List of Bursa Malaysia.

The following directors of TRACOMA at the material time were found to have breached paragraph 16.11(b) of the LR for permitting knowingly, or where they had reasonable means of obtaining such knowledge, TRACOMA to commit the above breach. The penalties imposed are as follows:

Bursa Malaysia Securities views the contravention seriously as timely disclosure of material information is one of the fundamental obligations of listed companies to preserve and sustain market integrity and investor confidence.

BACKGROUND

TRACOMA had breached paragraphs 9.03(1) and 9.04(l) of the LR read together with paragraph 2.1(d) of PN1 for failing to make an immediate announcement of the default in payment of the CLO of RM40 million to CapOne and MTB.

TRACOMA had failed to pay the total amount of RM41,140,800 within seven days as required in the letter of demand (LOD) dated 18 September 2008 and hence, triggered an event of default under the facility agreement. However, TRACOMA only announced the default in payment on 12 May 2010.

The representations that TRACOMA did not make an immediate announcement in respect of the default in payment given that there were ongoing negotiations / discussions with the lender / trustee and the company had in fact made certain payments towards the interest amount were not acceptable as the further negotiations with and the interest payments to the lender / trustee were merely steps taken to address the default in payment which did not unwind / rectify the occurrence of an event of default where an immediate announcement was required in accordance with the LR.

The finding of breach and imposition of the above penalties on TRACOMA and the directors were made pursuant to paragraph 16.17 of the LR upon completion of due process and after taking into consideration all facts and circumstances of the matter including the following:-

1. The materiality of the breach is as follows:-
   1. The outstanding principal and interest of the CLO amounting to RM41,140,800 as at 13 August 2008 represented 41% of TRACOMA’s net assets of RM100.8 million as at 31 December 2007;
   2. The length of delay in announcing the default in payment from the LOD dated 18 September 2008 was approximately 19.5 months;
   3. TRACOMA had failed to provide the requisite solvency declaration under paragraph 3.1(h) of PN1 to Bursa Malaysia Securities upon announcement of the default in payment on 12 May 2010. TRACOMA’s solvency declaration submitted to Bursa Malaysia Securities on 14 May 2010 was conditional and subject to the proposed restructuring plan of TRACOMA. Hence, TRACOMA had triggered the prescribed criteria under paragraph 2.1(f) of Practice Note No. 17/2005 (PN17);
   4. Notwithstanding that there was no trading in TRACOMA’s shares after TRACOMA announced the default in payment on 12 May 2010, it was noted that:-
      • TRACOMA’s share price was on a downward trend from August 2008 where TRACOMA’s share price had decreased from a high of RM0.695 on 25 September 2008 to RM0.45 on 31 December 2008 and RM0.225 on 31 December 2009; and
      • TRACOMA had made the First Announcement pursuant to PN17 on 2 March 2010 where TRACOMA had triggered paragraph 2.1(a) of the PN17 based on the unaudited results announced on 25 February 2010 and TRACOMA’s share price decreased by 56% i.e. from RM0.25 to RM0.11 on 4 March 2010; and
   5. The requirement for listed issuer to make an immediate announcement of material default in payment of credit facilities is fundamental to enable investors to make informed investment decisions concerning the listed issuer’s financial condition.
2. The knowledge, role, responsibilities and conduct of the directors:
   1. Based on the facts, they were or should be aware of the default in payment of the CLO since the Board of Directors meeting held on 16 October 2009 where they were informed that TRACOMA was facing very serious problem in meeting the obligation to pay the interest payment of RM2.8 million due to the CLO holders which RM1.4 million was already due and if TRACOMA failed to pay RM2.8 million to the CLO holders by 30 October 2009, TRACOMA would be in default. However, they failed to monitor the status of the Company’s repayments and ensure the company made an immediate announcement of the default in payment of the CLO particularly upon being made aware of the second LOD dated 14 January 2010.
   2. Notwithstanding that all the directors were non-executive directors, they had an obligation to ensure the proper discharge of TRACOMA’s obligation under the LR and in this regard, it was fundamental for directors to ensure and/or put in place clear processes and procedures for monitoring and reporting to the board on information pertaining to the company’s inability to pay its debts which was one of the key risks to the company.
      
      It was also not acceptable for them to merely rely on the chief executive officer and management’s representations that there was no necessity to make an announcement in view of their knowledge and the materiality of the default in payment.